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Transaction Capital: Fantastic results despite difficult trading environment

The debt-collection business in Australia is proving attractive, according to CEO David Hurwitz.

NASTASSIA ARENDSE:  Transaction Capital, which owns businesses that operate in highly specialised and underserved segments of the South African and Australian financial services market, published their numbers today. This is my conversation with CEO David Hurwitz.

DAVID HURWITZ:  Fantastic results. We are very happy with the performance, performing ahead of our expectations, specifically in the difficult environment. As I said in my presentation, we’ve seen lots of stress in the South African economy. Whenever you look at the consumer environment, the consumer is over-indebted. There is lots of political instability and we’ve had the downgrades earlier on in the year, and the threats of further downgrades coming now. So from a capital markets perspective lots of risk and stress in the environment. Our businesses are extremely defensive and thus we’ve been able to grow our earnings at a nice high rate.

Our taxi business grew earnings by 22%, and our services business grew earnings by 39%.

Read: Transaction Capital defies challenging environment

NASTASSIA ARENDSE:  Earlier this year, and I think it was effective from March, you acquired 100% of Recoveries Corporation in Australia, and then 75% of Road Cover and 51% of The Beancounter. How has the operational integration of those three companies been thus far?

DAVID HURWITZ:  Really what I wanted to say about the acquisitions is that the integration has been effected successfully, and secondly that those businesses are all performing in line with our expectations. I know it’s early days. We bought the businesses only about a year ago, but so far they’ve delivered what we expected them to deliver. There is lots of upside in the business and lots of opportunity.

NASTASSIA ARENDSE:  You mention in your Sens statement that you have a strong balance sheet that provides the capacity and the flexibility for further acquisitions. When you are sitting down with your team, what exactly would you be looking for? What would be the standout performer for you to be able to say, “We are going to put our money and our name next to it”?

DAVID HURWITZ:  Typically our acquisition strategy is very focused. We would look to acquire businesses that operate within our market segment. We are not looking to acquire a third pillar in Transaction Capital. We are really looking for something that fits exactly into our business.

Secondly, what we want is something that we believe we can develop and do something with. We are not just buying a business because it’s a good business, but we are buying a business because we think we can add to the value of that business or it can bring something to Transaction Capital.

So there are two specific areas that we are quite excited about at the moment. First of there’s the Australian markets. In Australia the recoveries market is extremely fragmented and we believe it was a nice opportunity buy some bulky acquisitions to grow our Australian subsidiary. And we’d look at an agency collection businesses there or else book-buyers in Australia. In Australia about 30% of debt collections is done through agency collections and about 70% gets done through the buying of non-performing loan books from banks and utilities. Both of those sides of debt-collection in Australia are very interesting to us.

In South Africa there are other acquisition opportunities. The one area where we are quite excited is around the value-added services segment. As you stated earlier, we bought Road Cover last year this time, and that’s a value-added services business and we’d look for other value-added services businesses, specifically in the insurance and services space.

NASTASSIA ARENDSE:  The one thing I liked about your Sens announcement today is you paint a really great picture in terms of what’s happening in the minibus taxi industry – the operating context behind everything. Take me through your perspective of the impact of the current environment we see ourselves in on the minibus taxi industry.

DAVID HURWITZ:  I think the point to make is that the minibus taxi is very resilient and very defensive, and the main reason for that is that 40% of our population rely on public transport.

NASTASSIA ARENDSE:  We’ll have to leave it there. Thank you so much for your time.

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